Air India mulls cancelling Boeing 777 order, IndiGo plans massive A320 order

In 2005 both Boeing India chief Dinesh Keskar and Airbus India chief Kiran Rao had smiling faces. They had each locked in big orders.

Air India had placed a mammoth order for 68 aircraft with Boeing which included 18 737-800, eight 777-200LR, 15 777-300ERs and 27 787-800 Dreamliners, while low cost carrier IndiGo placed an order for 100 Airbus A320-232.

Post the 2008 fuel price shock and 2009 economic crises, Keskar has a frown while Rao's smile has got even broader.

Boeing's biggest customer in India, the state owned and financially beleaguered Air India is wanting to cancel the balance of its Boeing 777-300ERs on order with the US airframe manufacturer.

The carrier has taken delivery of all 737-800's and 777-200LR's and 10 777-300ER's and is waiting for the much delayed Dreamliners. Due to the massive growth of foreign carriers in India who have captured huge chunks of Air India's traditional base -- the long distance international traffic, Air India wants to cancel the balance five 777-300ERs which due to be delivered within the next 15 months.

Clearly under political pressure, Air India is considering replacing the 777-300ER orders with 737-800 orders which will be used by its low cost subsidiary Air India Express. Boeing is offering 10 737-800's as a replacement but this is not enough for the carrier which is facing severe funding constraints. Air India wants the aircraft to be supplied at the prices that prevailed when the orders were placed, but Boeing thinks otherwise.

On the other side of the ocean so to speak, low cost carrier IndiGo has taken delivery of 25 of its 100 A320 order which is scheduled for completion by 2015. The carrier has taken approval from the Government for acquiring an additional 150 A320s for its post 2015 requirements.

The Wall Street Journal reports

IndiGo, operated by InterGlobe Aviation Ltd., has recently sought government approval to fly to destinations in South Asia and the Middle East from 2011. Two people with direct knowledge of the matter said in April that IndiGo has mandated four investment banks for an initial public offering to raise about 15 billion rupees ($337.8 million) in the current financial year that began April 1.

If on-going negotiations with Boeing fail, Air India can take a cue from India's largest private airline Jet Airways; take delivery of their new B77Ws and sell them off to other carriers who might just pay a premium for the faster delivery.

However, this option will leave some powers that are with no gain, and that is not a viable option for Air India.

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Thai AirAsia joins parent AirAsia as it commences India expansion plans

Last week Malaysia based low cost carrier AirAsia commenced its second phase of India expansion becoming the only carrier with flights between Chennai the capital of Tamil Nadu state in India, and the northern technology manufacturing centre of Penang in Malaysia.

Apart from the scores of ethnic Tamil origin population on both sides, major electronics players like Dell, Flextronics, Foxcon, and others can now bypass a tedious transit at Kuala Lumpur, Singapore or Bangkok and get to Penang faster.

Tomorrow, May 6th, the long haul arm AirAsia X will commence flights between the Malaysia capital Kuala Lumpur and the commercial capital of India, Mumbai. By the end of this month, Chennai and Bangalore will be connected to Kuala Lumpur with Hyderabad joining in July and Delhi in August. Full details of the schedule and launch dates can be read here.

AirAsia’s subsidiary Thai AirAsia is also set to join the aggressive expansion with direct flights between Bangkok and Delhi and Kolkata in July once it receives remaining clearances.

AirAsia itself will have 148 weekly flights to India before this year it out. Airline CEO Tony Fernandes is ebullient about future prospects indicating the carrier is planning a third daily flight to its first India destination, the tier 2 city of Tiruchirapalli (Trichy).

AirAsia wants to fly to 15 Indian destinations by the end of 2011 if it can secure the needed approvals, which would catapult it over Emirates, currently, the dominant foreign carrier in India.

The ASEAN triangle of Bangkok (Thailand), Kuala Lumpur (Malaysia) and Singapore is a major tourist destination, especially for first time overseas Indian tourist. The burgeoning middle class provides large volumes of value concious passengers to the carrier much to the dismay of ASEAN competitors, Malaysia Airlines, Thai Airways and to a degree Singapore Airline's subsidiary SilkAir, though SilkAir is commencing daily services to Bangalore by the 18th of this month. Staffers at Singapore Airlines remain un-fazed. The airline's reputation and top notch service ensures they are so full, that their fares are typically 150%~200% of their nearest competitor across all classes, but especially the premium business and first class.

AirAsia's invasion of the Indian skies will also offer stiff competition to Indian carriers as well both low cost and legacy. Air India, Air India Express, Jet Airways are already feeling the heat and have been forced to lower fares along with Malaysia Airlines.

The dominance of AirAsia will also surely have an impact on the soon to enter, Indian low cost carriers SpiceJet (this year) and IndiGo (next year).

Both SpiceJet and IndiGo will have to negotiate their international operations as if they are in a minefield with 8,000 pound gorillas on either side. To the east will be AirAsia and Tiger Airways and to the west it will be flyDubai, Air Arabia, and others.

It is a question mark whether Indian carriers, not just SpiceJet and IndiGo, have deep enough pockets and more importantly, willpower, to commence and then sustain flights in the midst of such brutal competition, but as the last year has shown, it is the low cost SpiceJet and IndiGo that have grown in leaps and bounds over their full service Indian counter-parts.

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Tarun Shukla at the Mint profiles the downfall of Paramount Airways

Over the last few months, I have grown to respect Tarun Shukla. Tarun and his colleague P.R. Sanjai at the Mint newspaper (a joint venture of The Hindustan Times and The Wall Street Journal), take the time to well research and write, analytical stories on the Indian aviation industry.

This week, Tarun has detailed the rather rapid decline of Paramount Airways, one of the early success stories of Indian commercial aviation. There is an interesting collection of stories which detail the timeline of the crisis at Paramount which has left the carrier with only one aircraft in its fleet.

I recommend you take the time to read both stories.

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